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Friday, 30 January 15
CONTANGO AND TANKERS - SKULD
 KNOWLEDGE TO ELEVATE
Like an invitation to a dance, the word contango may have some people flustered, but for tanker owners this market phenomenon is a serious matter of securing revenue for their vessels, while ensuring that they remain safe when employing them as floating storage facilities.
The Association is grateful to Messrs. London Offshore Consultants and Andrew Moore & Associates for providing input towards this advisory.
Contango
This word encapsulates a specific situation on the commodity markets where the future price of a given commodity is above the expected future spot price.
It arises where buyers are willing to pay more for a commodity, in the future, than the actual expected price.
A driving factor may be due to a willingness to pay a premium for the commodity in the future, without incurring storage and transportation costs of buying it today.
The fall in oil prices, contango and the impact on the tanker market
The last time oil prices fell dramatically was during the financial crisis of 2008, when it dropped from a record USD145 per barrel to under USD40. While this led to a lot of financial losses, enterprising parties seized the opportunity to buy cheap oil and given the shortage of land based storage they used tankers as floating tank farms. When the price rebounded, the oil was likely sold at a profit.
Oil prices fell significantly at the end of last year and at present they remain very low. The impact of this is felt across the world particularly when a number of oil economies as well as development projects work towards a price of USD100. The current price of below USD50 per barrel puts them under pressure while providing a boost to intensive oil consumers.
Again this market situation has given rise to contango, and again this has meant that tankers found themselves in great demand towards the end of last year. At first this was due to the rush to buy perceived cheap oil, but as shore side storages started to fill up, increasingly tankers were hired to act as floating storage facilities. Either way this was a welcome development to tanker owners and long term period charterers who saw their vessels fetch a solidly improved rate in the spot market.
Risks arising from the use of a tanker as a floating storage facility
How long will this period of low oil prices last? That is a question on which a lot of money will turn. Not least because buying and storing oil now is based on the goal of being able to sell it at a profit in the future, but that requires oil prices to rise by more than the cost of shore or ship storage and subsequent transport to the actual receiver.
The future development of oil prices is beyond the scope of this advisory, but events in the middle east will no doubt have a bearing on it.
For tanker owners, however, there are a number of issues that need to be considered before fixing a vessel out as a floating storage facility. Issues include:
- the vessel may engage in multiple STS operations if cargo is sold off in parcels, this may lead to shortages given that sea conditions can make exact ullages difficult
- if the cargo on board is bunker fuel, there may be requests for blending on board to achieve particular specifications (this may specifically be in breach of SOLAS)
- the origin of the cargo needs to be carefully checked, as in some places in the world there have been issues with smuggling and sanctions breaches
- cargo quality may be affected by long term storage at sea and therefore a full understanding of the cargo specifications and the cargo properties is important: cargo may become unstable, produce sediment, have significant microbial activity, there may be settling of contaminants and sludge, separation of water content or otherwise deteriorate over time
- particularly with sludge / wax formation (made up of both organic and inorganic materials) may lead to very significant pumping and ROB issues
- tank coatings, pumps, lines and valves may be affected if cargo becomes unstable, separates or on loading contains a significant amount of aggressive materials, including any prolonged contact with hydrogen sulphide (H2S)
- tank cleaning: long term storage of crude is likely to mean that the tanks will need more than a usual COW wash and a full tank cleaning may be necessary
- otherwise routine tank vapour management may become an issue, as venting may not be possible in all locations, and this is exasperated if the oil had a high (H2S) content, say greater than 15 ppm
- temperature fluctuations can cause venting during afternoons which may be followed by a drop in pressure at night, thus necessitating the running of the TUG (Top Up Generator) to avoid air being sucked in to the tanks or risk the atmosphere reaching the explosive zone
- if the vessel will be at anchorage, suitable preparation and maintenance of the main engine and auxiliaries will be necessary
- the hull may become fouled if the vessel stays at any location for a significant amount of time, and that may occur during drifting as well as short voyages followed by lengthy stays at anchorage or drifting
- the vessel’s class will need to be consulted, at least for the arrangement of periodic surveys and maintenance of certificates
- manning will be important, including compliance with SOLAS, SCTW and the MLC, as well as arrangements for appropriate crew rotations and shore leave
- vessels drifting or at outer anchorages need to maintain safe levels of fuel, water and provisions
This is not meant to be an exhaustive list, but it should highlight some of the key issues that will need to be addressed if the planned operation as a floating storage facility is to be performed safely and successfully.
Physical and commercial loss prevention advice
Vessel suitability
The starting point for any long term storage will be an assessment of the vessel’s suitability for this purpose. An important factor will be whether the vessel will be at sea or anchorage or otherwise operating. The state of the tanks will also be key, as the long term storage of cargo may put strains on the coating and lead to deterioration and corrosion.
STS operations
There are a number of issues that must be considered with any STS operation, and a full exposition goes beyond the scope of this advisory, but ensuring that it can done safely is paramount (factors include weather, sea states, fendering, the compatibility between vessels, etc.).
If many STS operations are envisaged, with cargo being parcelled out then there is an added risk of shortage issues, as it may not be easy to ensure that ullages are accurate and that only the correct amount is transferred. Paying extra attention to this issue will be important.
Smuggling and sanction breaches
An additional factor is that in some locations it has been known that smuggling may occur or that sanctions breaching activities are undertaken. Members should at all times ensure that the cargo they are taking is legitimate and fully documented. More information can be found here: Origin of cargo and Iranian oil STS.
Blending
If members are asked to engage in blending of cargo, it is important to remember that this is not permitted under SOLAS for any time the vessel is on a sea voyage. Further information on this regulation can be found here: SOLAS and blending.
Blending can also be an issue for P&I cover, as a new product is created (as opposed to co-mingling the same cargo / grade from different sources), and may also pose bill of lading challenges.
It may be necessary to have a laboratory set up on the vessel with a suitable expert in attendance to ensure that repeat operations result in the desired outcome, or risk possible contamination claims.
Cargo quantity
Even if the vessel does not engage in frequent STS operations, it will be necessary to monitor the volume of the cargo on board with periodic dipping and ROB calculations.
If the cargo is of the kind that can lose significant volume over time then this must be understood as an on-going issue.
Cargo quality
While some cargo types are stable, and not easily affected by long term storage at sea, others may be very sensitive or otherwise suffer deterioration over time. The particular cargo to be laden and stored must be properly understood, as well as the time frame for the proposed storage.
Should storage exceed the safe “shelf life” of the cargo, then action may be necessary to ensure it does not deteriorate significantly or risk potentially dramatic claims from ultimate cargo receivers.
Contractual risk apportionment
Owners and charterers should ensure that before fixing, the parties work out the full range of risk scenarios that come with the use of the vessel as a floating storage facility and make sure these are addressed appropriately in the final fixed charterparty.
That includes apportionment of risks, extra costs, hull and tank cleaning as well as insurance coverage issues, which will need to be addressed. Otherwise these are likely to be fertile ground for disputes.
Failing to contract carefully can be financially devastating
Insurance implications
Using a vessel as a long term oil storage facility may impact insurance coverages, as this may not be the trade for which she is normally insured, and indeed this operation is not like a hot or cold lay-up situation. It would be prudent consult with underwriters about the potential impact before fixing the vessel for this purpose.
For vessel specific enquiries, members are asked to contact their usual Skuld business unit.
Source: SKULD | Hellenic Shipping
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Tuesday, 13 January 15
Q2 CFR SOUTH CHINA COAL SWAP DECLINED 8.66% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined by US$ 3.48 (-5.73%) month over month and US$ 2.35 (-3.94%) week ...
Tuesday, 13 January 15
Q1' 2015 RICHARDS BAY COAL SWAP SLIGHTLY HIGHER THAN Q2 & Q4 2015 SWAPS
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 7.21 ...
Monday, 12 January 15
COAL: LOW PRICES ARE EXPECTED TO DRIVE A SUPPLY-DRIVEN RECOVERY IN THE MEDIUM TERM - SGX
COALspot.com: Thermal coal prices dropped to six-year lows in 2014 driven by persistent oversupply, SGX says in its “ Commodities 2014 - A ye ...
Monday, 12 January 15
FREIGHT MARKET: 2015 FLEET SUPPLY GROWTH IS EXPECTED TO REMAIN SLIGHTLY AHEAD OF CARGO GROWTH - SGX
COALspot.com: The dry bulk freight market was forced to digest a number of negatives in 2014 leading the Baltic Dry Index to fall 66% through the y ...
Monday, 12 January 15
SHIPPING - CHALLENGES AND RESOLUTIONS - EVA TZIMA
Last year has without a doubt been another challenging one both for both our industry and our country. As Greece is currently dominated by election ...
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Showing 3261 to 3265 news of total 6871 |
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- Power Finance Corporation Ltd., India
- Standard Chartered Bank - UAE
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Global Business Power Corporation, Philippines
- Ministry of Mines - Canada
- Kalimantan Lumbung Energi - Indonesia
- Heidelberg Cement - Germany
- London Commodity Brokers - England
- Petrochimia International Co. Ltd.- Taiwan
- GVK Power & Infra Limited - India
- The State Trading Corporation of India Ltd
- Sical Logistics Limited - India
- Directorate Of Revenue Intelligence - India
- Directorate General of MIneral and Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Energy Development Corp, Philippines
- Australian Commodity Traders Exchange
- Formosa Plastics Group - Taiwan
- Metalloyd Limited - United Kingdom
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Georgia Ports Authority, United States
- Asmin Koalindo Tuhup - Indonesia
- Eastern Coal Council - USA
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- International Coal Ventures Pvt Ltd - India
- Agrawal Coal Company - India
- CNBM International Corporation - China
- The University of Queensland
- PowerSource Philippines DevCo
- Larsen & Toubro Limited - India
- India Bulls Power Limited - India
- Sindya Power Generating Company Private Ltd
- Simpson Spence & Young - Indonesia
- Jindal Steel & Power Ltd - India
- Tata Chemicals Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vedanta Resources Plc - India
- Ceylon Electricity Board - Sri Lanka
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Coastal Gujarat Power Limited - India
- Kobexindo Tractors - Indoneisa
- ICICI Bank Limited - India
- Dalmia Cement Bharat India
- Planning Commission, India
- Coalindo Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- PNOC Exploration Corporation - Philippines
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Aditya Birla Group - India
- Borneo Indobara - Indonesia
- Attock Cement Pakistan Limited
- Rio Tinto Coal - Australia
- Videocon Industries ltd - India
- Baramulti Group, Indonesia
- Altura Mining Limited, Indonesia
- Sakthi Sugars Limited - India
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Indika Energy - Indonesia
- Wilmar Investment Holdings
- Deloitte Consulting - India
- MS Steel International - UAE
- Timah Investasi Mineral - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Mercuria Energy - Indonesia
- GMR Energy Limited - India
- Kumho Petrochemical, South Korea
- Eastern Energy - Thailand
- Aboitiz Power Corporation - Philippines
- Lanco Infratech Ltd - India
- Wood Mackenzie - Singapore
- Kepco SPC Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Chettinad Cement Corporation Ltd - India
- New Zealand Coal & Carbon
- Bayan Resources Tbk. - Indonesia
- LBH Netherlands Bv - Netherlands
- Intertek Mineral Services - Indonesia
- Mjunction Services Limited - India
- Economic Council, Georgia
- The Treasury - Australian Government
- Global Coal Blending Company Limited - Australia
- Chamber of Mines of South Africa
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Bulk Trading Sa - Switzerland
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- Bangladesh Power Developement Board
- Iligan Light & Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- GAC Shipping (India) Pvt Ltd
- Indonesian Coal Mining Association
- Bhoruka Overseas - Indonesia
- Trasteel International SA, Italy
- Malabar Cements Ltd - India
- Australian Coal Association
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Minerals Council of Australia
- Bahari Cakrawala Sebuku - Indonesia
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Parliament of New Zealand
- Semirara Mining and Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- South Luzon Thermal Energy Corporation
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- Kaltim Prima Coal - Indonesia
- Ministry of Finance - Indonesia
- Singapore Mercantile Exchange
- SMG Consultants - Indonesia
- SN Aboitiz Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- Indian Oil Corporation Limited
- Siam City Cement PLC, Thailand
- Bharathi Cement Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- Kartika Selabumi Mining - Indonesia
- SMC Global Power, Philippines
- Coal and Oil Company - UAE
- Barasentosa Lestari - Indonesia
- Meralco Power Generation, Philippines
- Bhatia International Limited - India
- Siam City Cement - Thailand
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Orica Australia Pty. Ltd.
- Semirara Mining Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Ministry of Transport, Egypt
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indian Energy Exchange, India
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- McConnell Dowell - Australia
- European Bulk Services B.V. - Netherlands
- Makarim & Taira - Indonesia
- Sojitz Corporation - Japan
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Petron Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Independent Power Producers Association of India
- Romanian Commodities Exchange
- Leighton Contractors Pty Ltd - Australia
- AsiaOL BioFuels Corp., Philippines
- Interocean Group of Companies - India
- Commonwealth Bank - Australia
- Bukit Makmur.PT - Indonesia
- IHS Mccloskey Coal Group - USA
- Parry Sugars Refinery, India
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- VISA Power Limited - India
- Gujarat Sidhee Cement - India
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Jaiprakash Power Ventures ltd
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Energy Link Ltd, New Zealand
- Price Waterhouse Coopers - Russia
- Thai Mozambique Logistica
- PTC India Limited - India
- Ind-Barath Power Infra Limited - India
- Anglo American - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Holcim Trading Pte Ltd - Singapore
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